Transforming Drug Medi-Cal: Key Considerations for a Waiver Amendment

June 2, 2014

California’s expanded Medi-Cal program and expanded Substance Use Disorder (SUD) benefit provides an opportunity for beneficiaries to access improved services through the Drug Medi-Cal (DMC) program. In California, 1.9 million individuals are newly enrolled in Medi-Cal in 2014, [1] and an anticipated 147,000 to 195,000 of these individuals are in need of SUD treatment. [2] New enrollees include childless adults, and this group includes some individuals who are homeless or have been involved in the criminal justice system. These individuals often have greater SUD needs than previously enrolled beneficiaries.[3] Traditionally, these groups previously experienced barriers to service access, poor treatment outcomes, and high cost of services (i.e. Emergency Department visits),[4] and could benefit greatly if they utilize new SUD services.

Senate Bill X 1-1 increased the availability of SUD services, which were previously only available to certain populations, to all Medi-Cal beneficiaries. Enhanced SUD services include intensive outpatient treatment, residential SUD services, and a new elective detoxification benefit.[5] However, the complete set of expanded SUD services are unavailable due to federal regulations and a lack of network capacity.[6] In an effort to resolve this problem and recent program integrity issues, the state has begun to develop a §1115 Demonstration Waiver amendment for the DMC program. The §1115 Waiver amendment will allow California to test new programs to improve the quality and program integrity of DMC.[7] This policy brief identifies the current priority policy considerations for the DMC program, examines key opportunities for the upcoming waiver, and provides recommendations on how to implement changes to promote an organized delivery system.

In this brief, we recommend that DHCS use a waiver amendment for DMC to achieve the following goals:

  1. Increase local authority through selective contracting with providers;
  2. Establish a robust state oversight and quality improvement program for DMC;
  3. Make available the residential treatment benefit by resolving with CMS the outstanding issues related to the Institute for Mental Disease (IMD) exclusion;
  4. Cover SUD services under the Medicaid Rehab Option;
  5. Support an integrated safety net delivery system by coordinating SUD services with physical and mental health services.

For the full report, click here: 1115 DMC Waiver


[1] Covered California. Covered California’s Historic First Open Enrollment Finishes with Projections Exceeded; Agents, Counselors, Community Organizations and County Workers Credited as Reason for High Enrollment in California. Available at:

[2] Connolly, J., Vishaal, P. Toward a Better Medi-Cal Substance Use Disorder Benefit in California: Smart Investments for Improving Lives.

[3] Ibid.

[4] The California Department of Health Care Services. California Mental Health and Substance Use System Needs Assessment and Service Plan. Available at:

[5] Connolly, J., Vishaal, P. Op cit.

[6] SB X 1-1 requires the Department of Health Care Services to submit any necessary State Plan Amendments (SPA) or waivers to make the full benefit available. A Substance Use Disorder Services Expansion SPA was submitted on December 05, 2013 and sought approval to authorize the above-mentioned benefits. While under review by CMS, residential treatment services was removed from the SPA, and the State must now seek a waiver to make this benefit available.

[7] The California Department of Health Care Services. Meeting Minutes: Substance Use Disorder Drug MediCal Waiver Advisory Group.  Available at: